ETMarkets Smart Talk: Poonam Tandon like stocks in banking, capital goods, infrastructure, and utilities which offer growth

In an interview with ETMarkets, Tandon said: “Banking sector is reasonably valued, considering the expected strength of the credit cycle in the coming years” Edited excerpts:

Indian market has steadily climbed the wall of worries and is trading closer to record highs. Weak global cues triggered some volatility but where is the market headed in 2H2023?
Indian markets have witnessed significant volatility in the last year in the face of persistent inflation, resulting in tighter monetary policies across the globe.

The ongoing rate tightening has begun to impact the financial systems in developed markets, leading to the collapse of some regional banks in the US.

In contrast, we have remained resilient due to regulatory oversight and the healthy balance sheets of the Indian financial system.

Looking ahead, as inflation is expected to peak and the monetary tightening cycle reaches its late stages, we believe that the Indian markets will outperform, benefiting from better visibility for earnings growth and relatively attractive valuations.

You have been tracking earnings very closely – any standout themes which have come across from the recent numbers? What is the sense you are getting from the management commentary?
So far, the Q4FY23 earnings season has been decent in terms of performance, and the commentary has also been encouraging, with growth and demand outlook intact for most sectors.

However, the IT sector experienced macro headwinds in terms of demand growth and commentary. On the other hand, banks reported strong results and provided positive commentary on retail loans and asset quality.

Capital goods and defense companies showed strong performance, and the overall commentary has been positive. The auto and cement sectors witnessed margin improvement due to the softening of commodity prices, while consumer companies reported mixed results.

That being said, the FMCG sector is witnessing early signs of a pickup in demand in rural markets and is also expected to benefit from falling commodity costs.

In terms of valuations, how are Indian markets placed when compared to peers?
We believe India is relatively well placed compared to other markets in terms of macro stability. With fears of a global recession, monetary tightening, and the US banking crisis receding, India’s strong economic and political stability, along with domestic capex triggers and benign crude prices, contribute to a resilient growth outlook.

In the last six months, valuations of the Indian equity market have moderated from their peak and are currently trading at reasonable levels compared to their historical long-term averages.

Which themes are you tracking or likely to see some traction in 2023 in the run-up to the National elections exactly in the next 12 months?
We continue to maintain a positive outlook on the domestic investment cycle and favor sectors such as Banking, Capital Goods, Infrastructure, and Utilities, where growth visibility remains high.

In our opinion, the banking sector is reasonably valued, considering the expected strength of the credit cycle in the coming years.

Additionally, we maintain a positive stance on the Capital Goods and Infrastructure space, as companies report robust order books and strong balance sheets.

Will ONDC disrupt the new-age companies’ model? What are your views?
Most of the leading new-age companies are well positioned in their respective spaces; however, any new consumer-friendly technology will always disrupt the e-commerce space.

While existing companies have experience dealing with legacy issues, a new company will be able to directly take advantage of the ONDC platform.

We believe ONDC will increase competition as it broadens the e-commerce ecosystem by providing greater reach for marketplaces and sellers.

The tide seems to be reversing in favor of India as FIIs are buying Indian equities and DIIs are booking profits. What has changed? Is it the economy or cool-off in valuations?
Since March, FIIs have turned net buyers, infusing over INR 45,000 crore into Indian markets in the last three months, while DII flows have been mixed.

In our view, FIIs have started buying Indian equities as India is relatively one of the fastest-growing markets amidst concerns over global growth.

Additionally, valuations have been corrected in the last few months, which further makes it attractive for them to invest.

New demat accounts have come down according to NSE data. Can we say that initial euphoria among retail investors is coming down?
We saw a significant increase in new demat account additions during the pandemic. However, since last year, as markets turned volatile, this has impacted the sentiments of retail investors.

Additionally, the IPO market also witnessed the listing of new-age companies that failed to meet investors’ expectations, further denting the sentiments.

(Disclaimer: Recommendations, suggestions, views, and opinions given by experts are their own. These do not represent the views of Economic Times)